The markets continue to trade at record highs despite turmoil in Washington and increased tension in the middle east.
A strong job market has boosted consumer confidence and in turn, led to strong consumer spending. Retail accounts for a huge portion of the overall economy and a strong consumer retail landscape should keep strength in the broader market.
It will be difficult for 2020 to produce the same gains as it did in 2019, but there is no reason to expect the bull market to run out of steam either. Most investors want to keep their money at work in the market but are cautious given the level of gains stocks have produced in recent years and the major indexes trading at record highs.
For investors that want to remain in the market, here are my favorite sectors and stocks within them that I recommend for 2020.
Technology - Microsoft (MSFT)
Technology has fueled the bull market in recent years. The top tech stocks have consistently rewarded investors and that is unlikely to change in 2020. Cloud computing and e-commerce has been strong. Microsoft (MSFT) has been among the top stocks in the overall market and should continue to show strength through the new year. The company has enjoyed profit growth of 18% annually over the last five years and analysts expect more of the same in the current year with estimates calling for earnings to rise 13.5% during the current year and by 14.5% per annum over the next five years. MSFT currently has a forward P/E of 27. The stock trades at $163.48 with an average price target of $167.05. Cloud computing will only continue to grow in importance, and as a leader, in the sector, Microsoft should remain a top stock in the broader market. MSFT has a dividend yield of 1.3%.
Financials - JP Morgan (JPM)
With strong economic conditions, the financial sector has remained solid. The Federal Reserve cut interest rates three times in 2019, but the lower rates did not have a material impact on profits at the big banks, and the boost the cuts gave to the housing and overall market have helped the big banks continue to show solid profit growth. JP Morgan (JPM) kicked off the current earnings season with a big quarterly report that easily outpaced estimates on both the top and bottom line. The strong set of numbers helped lift the stock to a new all-time high. Despite trading at its all-time high, JPM remains an attractive value with shares trading at just 12.7 times earnings. Profits have risen 15% annually in the last five years, and while profit growth is expected to slow analysts still forecast earnings growth of 6.3% per annum for the next five years. The bank has a long track record of posting much higher than expected quarterly profits so the growth estimate could prove to be on the conservative side. JPM trades at $136.27 with an average price target of $138.73. JPM has a 2.6% dividend yield.
Retail - Target (TGT)
Positive economic conditions, in particular, a strong job market has helped boost consumer confidence and has resulted in the bottom line of major retailers. Target (TGT) has been among the top retailers as Wall Street has driven shares higher in reaction to strong e-commerce growth and gains in same-store sales. TGT stock has risen over 75% over the last year, and shares are currently trading just shy of their all-time high. There is a lot of value left in TGT which is now trading at 18 times earnings and profits are expected to rise at an annualized rate of 10.3% over the last five years. Target has invested heavily in its online business as well as its employees and stores to improve the customer experience. The investments are paying dividends and Target has shown impressive growth both online and at its brick and mortars locations. If Target is able to continue posting strong earnings growth there is a lot of upside in the stock. TGT also has a 2.1% dividend yield. The stock currently trades at $116.53 with an average price target of $127.95.
